Air India vendors can expect some relief by next month, as the airline plans to borrow Rs 900 crore from banks to clear a part of it dues.

"Air India is paying an interest of around 16 per cent on a large part of its dues. With the payment of Rs 7,400 crore to banks through the bond issue that will close by the middle of next month, the airline will borrow Rs 900 crore from banks to repay a part of it," said a senior civil aviation ministry official.

The official said that the national carrier owes around Rs 2,000 crore to oil marketing companies and around Rs 1,000 crore to various airport operators. "The details have not been worked out, but the whole logic behind the borrowing is to reduce the interest outgo on the current dues with high interest rate," he added.

As part of Air India's financial restructuring package, banks have converted 60 per cent of its total short-term debt to long-term with a lower interest rate. The rest Rs 7,400 crore are to be paid to banks through a government guaranteed bond issue that will close by mid-December.

"The banks will not have any problems in lending us Rs 900 crore after we pay back around 40 per cent of the debt. Paying back a large part of the debt also gives us a window to borrow," said the official.

He said the airline does not require extra money to fund its day-to-day operations, as the operations are being funded by internal accruals and Rs 2,000 crore cash credit account is enough for the airline. "The airline is doing operationally well and we expect the airline to get operational profit by the end of this fiscal," the official said.

Of the Rs 7,400 crore bond issue, the Employees' Provident Fund Organisation is likely to pick up Rs 4,400 crore and the Life Insurance Corporation is likely to take Rs 3,000 crore worth of bonds. "These two organisations will earn an interest amount of Rs 350 crore annually on the amount invested on the bonds," said the ministry official.

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